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The Dodd-Frank Wall Street Reform and Consumer Protection Act of July 2010 rode to passage on the back of enormous public enmity toward the financial-services industry. University of Pennsylvania law professor David Skeel's short, informative volume provides a tough-minded analysis of the measure. But he succumbs to populist ideology in praising its consumer-protection provisions.

The author hits his stride with a low-key, but devastating, dissection of Dodd-Frank's ill-conceived centerpiece: the Financial Stability Oversight Council. One dangerous consequence of the bank bailouts was the creation, through acquisition, of banks that have truly become too big to fail. But rather than pursue a consistent program of deconcentration, Dodd-Frank uses the FSOC to implement a corporatist solution that uses big government as the counterweight to big banks.

The New Financial Deal

FSOC has virtually unreviewable power to make or break any big bank or other key financial institution on the mere supposition that it somehow poses a systemic risk to the banking system. In the process, it could propound an ill-considered rule that sends the financial sector into a tailspin. One stroke of the pen could reduce the largest bank in the nation to a ward of the state, without any judicial protection against administrative overreaching.

Skeel notes how the rule of law necessarily takes a back seat by letting the FSOC decide which creditors can benefit from its own preferred proceedings and which are left to pick over the dregs in ordinary bankruptcy proceedings. That level of unbounded discretion creates the type of uneasiness in the private sector that Dodd-Frank is supposed to control. The casual approach to priority arrangements quietly legitimizes the shocking maneuvers that let the federal government organize the sham sales of Chrysler and General Motors, which catapulted unsecured union pension funds ahead of secured creditors.

Ironically, the greatest source of systemic risk today is the monolithic, state-created FSOC. To compound the irony, Dodd-Frank says nothing at all about reining in Fannie Mae and Freddie Mac, the government-sponsored enterprises that flooded the secondary markets with so much bad mortgage paper in the first place.

Skeel gives an approving grade to the bill's requirement that all derivatives trade through clearinghouses, to reduce undue trading risk between unprotected counterparties. I'm not so sure. The guarantee offered by the clearinghouses will itself become a potential source of systemic risk, and putting these trades into an exchange straitjacket could hamper financial innovation. (When President Obama signed Dodd-Frank, he said it would "help foster innovation, not hamper it.")

Skeel's knees turn especially wobbly when he discusses Dodd-Frank's Consumer Financial Protection Bureau. The same author who recognizes that the above-mentioned FSOC is on a collision course with the rule of law is somehow blind to similar dangers from the standardless concentration of power in the CFPB—an entity with a guaranteed budget funneled through the Fed, and with virtually nonexistent judicial review.

There are, of course, individuals who make mistakes in credit management. But the same can be said of regulators, who frequently impose conditions that induce lenders to shun marginal borrowers, driving them into the hands of payday lenders, pawn shops and loan sharks that demand much stiffer terms.

Skeel is right to point out that Dodd-Frank's complex system of financial regulation could count as the first step in our next financial crisis. He might have added that the legislation's consumer-protection piece could turn out to be the second.

RICHARD A. EPSTEIN is a professor at the NYU School of Law and a senior fellow at the Hoover Institution.

Direct Approach

Sales pitch or good advice?

Reviewed by Martin Fridson

This best seller offers something unique. Other books by investment advisors run promotional material on the dust jacket, but this one adds an explicit commercial solicitation right in the text, complete with instructions on opening an account at the writer's brokerage firm.

Author Damon Vickers, managing director of Seattle-based Nine Points Management and Research, also trumpets his early spotting of such winning stocks as Starbucks and Amazon.com, as well as a 63% return on one of his private funds. Such claims are very different from a comprehensive, non-cherry-picked list of recommendations, or the performance record of all accounts managed by the company.

The Day After the Dollar Crashes

As its title suggests, The Day After the Dollar Crashes is mainly a futuristic tale of global economic collapse, improbably followed by a New World Order under a benign central government. The first phase, the author imagines, may include seven- to 10-digit hyperinflation; a bankruptcy sale of the U.S. to China, the Mideast and Europe; food riots; shootings and a temporary police state. But not to worry. In the succeeding, utopian era, the world government will have a leader motivated by unconditional love—not surprising in a work that includes sentences like: "I believe our ultimate task is to learn to unify in Oneness and to embrace the humanity in all of us, rather than perpetrating [sic] our separateness."

Few would dare challenge such wisdom. More debatable is the author's championing of homeopathic remedies. Similarly questionable is his dismissal of the orthodox view that production for domestic sale represents a bona fide part of gross domestic product. "The only real gauge of our worth is what we export," he declares. By this logic, global GDP, which he mentions elsewhere, is illusory because Earth is not yet exporting goods to other planets.

Vickers also asserts that the U.S. stayed out of World War II "until the very end." Other sources report that the war was waged from 1939 through 1945, and that America entered it in December 1941.

He also advises refraining from buying until a bottom is reached, although his only guidance here is to "follow the trend." Perhaps the vagueness will motivate readers to seek clarification by tearing out the page on opening an account at his firm.

MARTIN FRIDSON is BNP Paribas Asset Management's global credit strategist. His books include Unwarranted Intrusions: The Case Against Government Intervention in the Marketplace.

Is It High Time?

Fresh looks at marijuana

Reviewed by David L. Nathan

This "Complete Guide" to pot mostly delivers on its promise of completeness. In 42 essays by a broad range of cannabis cognoscenti, NYU School of Medicine psychiatrist Julie Holland offers something for almost everyone.

Despite the pro-legalization slant of most of the authors (and editor Holland), several chapters on health risks make clear that cannabis isn't simply the benign and enlightening "stealth goddess" envisioned in one of the book's essays. The chapter on parenthood, written by a pot-smoking father, lacks the gravitas needed in a world that exposes kids to grown-up activities at uncomfortably young ages. But another chapter provides uncommonly practical advice for parents counseling their teenagers about drugs.

The Pot Book: A Complete Guide to Cannabis

Artist and author Jeremy Wolff contributes an eloquent essay on how marijuana intoxication changes perceptions through "dishabituation" to everyday experiences. And Paul Armentano, of the National Organization for the Reform of Marijuana Laws, advocates a rational policy on "drugged driving."

Comedian Tommy Chong discusses his incarceration for selling water pipes, with every indication that he was singled out to be a high-profile "bust" that could (and apparently did) advance the careers of those involved. His jaw-dropping narrative should frighten anyone who values the fourth amendment or believes that justice ultimately prevails.

Perhaps the best chapter is Harvard economist Jeffrey Miron's concise, dispassionate cost-benefit analysis of legalization. It surveys the economic, political and social impacts—positive and negative—likely to result from legalization. Perfectly balanced and rational, it deftly condenses a great deal of research. While he makes the case for both positions, in the end Miron clearly favors legalization.

All told, this book is an excellent sampling of opinions on America's changing relationships with pot.

Psychiatrist DAVID L. NATHAN is director of continuing medical education for the Princeton HealthCare System.

Our True Colors

Red ink, white and blue

Reviewed by Mark Calabria

This survey of American financial history, viewed through the lens of inflation and debt, has clearly been written with the ultimate aim of informing policy about combating those interrelated evils. Along the way, Institutional Risk Analytics cofounder R. Christopher Whalen, who has occasionally written for Barron's, manages to entertain as well as inform.

Eerie parallels with today are a central feature of the book. We are introduced to one of America's earliest credit-driven booms and busts, the 1830s property bubble, which enabled state governments to indulge in a borrowing and spending spree. Public debates ensued over whether Washington should "bail out" the states. But the states were left to their own devices, with several defaulting.

Inflated: How Money and Debt Built the American Dream

When Whalen describes the workings of the first and second Banks of the United States, much of it feels like a precursor to later debates regarding the Federal Reserve. In this light, Rep. Ron Paul comes across as a modern-day Andrew Jackson, whose battle with the Bank of the United States is retold while also placed in the context of current events.

The book reminds us that most wars are financed not by direct taxation, but through inflation and debt. The American experience has been little different from the experiences of other countries. Beginning with the financing of the Civil War and ending with the Cold War, Whalen draws out the connections between paying for war and its broader impacts on the financial markets.

Of particular interest is the role that Civil War financing played in the creation of the national banking system, which today seems more focused on funding government than business. In fact, the history surrounding the creation of the national banking system offers a useful reminder that much of it was expressly designed with the intention of providing a ready source of demand for government debt.

Whalen writes with wry understatement about a host of events and personalities. For example, summing up a former Fed boss, he observes, "Chairman Greenspan may not have been a particularly good economic prognosticator or bank regulator, but he was an exceptional politician."

While Inflated is not an explicitly partisan tract, its leanings are obvious, even to those of us who share them. The concluding chapter lays out stark choices. At one point, the author declares, "If the United States cannot summon the will to grapple with the twin demons of public debt and inflation, then it may be that America lost the Cold War after all."

MARK CALABRIA, director of financial-regulation studies at the Cato Institute, recently published "The Debt Trap" in The European, an online publication (www.theeuropean-magazine.com).